Dear Reader,
Yesterday, we had a look at one of the supply chain bottlenecks in the semiconductor industry that no one is talking about – ultra-pure silicon wafers. Silicon wafers are the building blocks upon which semiconductors are manufactured. Without them, we’d have nothing.
It’s a market that very few know about, and it’s one that is dominated by just three players. The top two are in Japan, and the third is in Taiwan. And the long-term availability of these disc-shaped wafers essentially defines the maximum output of the semiconductor industry.
Even as the wafer industry brings additional wafer production capacity online, according to Japan-based supplier Sumco, the demand for wafers will far exceed the supply for years to come. And this means that the semiconductor industry will continue to have pricing power in this kind of market.
Understanding this simple dynamic, coupled with the rising demand for application-specific semiconductors, makes it easy to understand why we are seeing an explosion of investment in early stage private semiconductor companies.
2021 was a remarkable year, pulling in $6.4 billion of private investment. Making the year even more of a standout was that it was more than double what we saw in 2020, which was the previous record-holding year.
Two things happened last year. We saw record inflows, and the size of the average investment into these semiconductor startups popped higher.
Historically, early stage investments into semiconductor startups have been a less attractive space to allocate capital.
Semiconductors have been seen as “hard” to do, requiring large capital expenditures years before having a product to monetize. Semiconductors, after all, are hardware, and they don’t typically carry the kinds of attractive gross margins that software companies enjoy.
But I’m seeing some dramatic shifts in the development process. Just 10 –15 years ago, when I worked at semiconductor giants like Qualcomm and NXP Semiconductors, it used to cost a fortune to develop a prototype semiconductor.
For example, you’d spend millions designing a semiconductor. You’d simulate, test, and eventually get to the point where you’d be ready to “tape out.” This is the point where you take the computer design of the chip and send it to a fabrication plant for production.
It wasn’t cheap. Back then, a tape-out for an average chip could cost $20 million just to get a prototype. This would allow you to test the actual semiconductor in real life.
And the reality was that you really didn’t know if it would perform the way that was intended. It was a nerve-wracking process and a major financial decision for most companies… even more so for a small startup. After all, spending $20 million for a product that may not work as you intended could mean the end of a small company.
Today, the failure rate from design to prototype has dropped significantly due to the large improvements in both computer-aided design tools and the sophistication of semiconductor design. And for more standard, application-specific semiconductors, the costs to manufacture and test a prototype have dropped down into the low single-digit millions.
These two dynamics have spurred on a new generation of semiconductor startups, and thus the venture capital to fund these exciting new projects.
While companies like Intel, NVIDIA, and Advanced Micro Devices (AMD) will continue to produce the “workhorses” for the industry in terms of central processing units (CPUs) and graphics processing units (GPUs), most of the industry invests heavily in designing and manufacturing semiconductors for application-specific purposes.
And these are where some of the most exciting investments with the largest upside can be found. If you’re interested in learning more about my recommendations in this space, you can do so right here.
Today, we are checking back in on NASA’s Artemis program. And it’s not going well…
For the sake of new readers, Artemis outlines NASA’s plan for establishing a manned presence on the Moon. This includes setting up a base on the Moon before 2031…
Well, NASA Inspector General Paul Martin just gave us an update… and this goal appears out of reach unless NASA dramatically alters its course. According to Martin, “there was poor planning [and] poor execution” from aerospace contractors Boeing and Lockheed Martin.
If we remember, NASA tasked Boeing and Lockheed Martin with the Space Launch System (SLS) and the Orion capsule. Project Artemis calls for the SLS and Orion to get crewmembers to the Moon.
SLS Configuration
Source: NASA
However, this program has generated $10 billion in red ink. And it still hasn’t demonstrated a working rocket.
In fact, the project has only been able to demonstrate a static fire on Earth, which happened earlier this year. The contractors are literally years behind the competition.
Aside from the remarkable lack of performance and innovation by the contractors, there was also a perverse incentive in place due to the way that NASA structured its contracts.
Boeing and Lockheed Martin have a cost-plus contract with NASA. This is a common government contract structure. It stipulates that contractors will be able to charge NASA the direct costs of whatever they spent, PLUS an agreed-upon margin.
What this means is that the contractors can’t lose. No matter how much they spend on the project, they’ll always make their margin. And the more they spend on the project, the more they earn.
It’s easy to see how this creates a perverse incentive to overspend. And that’s exactly what Boeing and Lockheed did. They are billions over budget, which is the equivalent of fleecing American taxpayers.
As a result, NASA is now at least two years behind schedule. Artemis is now looking to launch in 2026 at the earliest.
And get this – the legacy contractors still estimate that each flight to the Moon will cost $4.1 billion. That’s in addition to all the money they have burned through in developing the SLS system.
Simply put, there’s a better way.
Elon Musk’s SpaceX will soon test its orbital spacecraft Starship. If we remember, Starship is the first reusable all-purpose spacecraft. It’s the one that looks like a corn silo.
SpaceX’s Starship Design
Source: SpaceX
This craft can take crew and cargo to and from space repeatedly. And it can do so at a fraction of the cost of the SLS system. The Starship’s per flight price tag will be measured in the millions, not billions.
What’s more, SpaceX already has proven its Falcon 9 and Falcon Heavy rockets work well. In fact, last year SpaceX launched 31 Falcon 9 rockets with a 100% success rate. Starship will likely have a similar trajectory of success once it reaches its final design.
So I see the Starship as an excellent alternative to the current SLS system. SpaceX is years ahead of Boeing and Lockheed in terms of technology. And it’s far more efficient from a budget standpoint.
As it stands, the Starship’s orbital flight is currently under review by the Federal Aviation Administration (FAA). SpaceX cannot test the Starship until this review is complete.
Initially, the FAA was scheduled to clear SpaceX for its first orbital launch by February 28. However, the ruling is now set for March 28.
Assuming the FAA gives it the green light, I believe we will see the Starship launch in April. And if it is successful, NASA will need to seriously consider scrapping the SLS and Orion model in favor of SpaceX and the Starship.
That’s the only way to get Project Artemis back on track.
So I see this as an exciting development. And it’s amazing that private companies like SpaceX are now key to the next generation of space exploration. This is going to be a fun story to follow.
Amazon just made a big move. It opened the first cashierless Whole Foods store in the Glover Park neighborhood of Washington, D.C.
Even more exciting, the store uses the same “Just Walk Out” technology that Amazon deployed in its Amazon Go stores. This is an impressive feat given that this Whole Foods location is about 21,000 square feet. That’s much larger than Amazon’s Go stores.
For the benefit of new readers, “Just Walk Out” tech is exactly what the name implies. Here’s how it works…
To enter the store, consumers have two choices. They can sign in by scanning a QR code on their smartphone or their palm on Amazon’s palm scanner. This links consumers to their Amazon accounts.
From there, high-tech cameras loaded with a form of artificial intelligence (AI) called computer vision (CV) line the rafters. These cameras keep track of every item shoppers place into their cart or bags. This produces a running “tab” for each shopper.
And, of course, the cameras remove an item from the tab if consumers put it back on the shelf. I tested this system myself when I visited Amazon’s Go store in Manhattan. Sure enough, the cameras got it right.
Amazon’s “Just Walk Out” Store
Source: Whole Foods
With the cameras keeping an eye on everything, shoppers are free to take the items they want and then simply walk out of the store. At that point, the store charges their Amazon account, and they get a receipt by email.
How’s that for convenient?
As we have discussed before, this model provides a frictionless experience for consumers. It’s far superior to the traditional checkout line model.
We won’t have to wait in line… and the automation means stores won’t have to hire as many employees to oversee cashiers. That’s especially valuable given the labor shortage we’ve been experiencing.
The only question was whether Amazon could make this computer vision system economical in a large storefront setting. After all, it’s not cheap to outfit a store with high-tech cameras that can see every square inch of the space.
That said, Amazon has already announced that it is opening another cashierless Whole Foods in Los Angeles later this year. It seems the tech giant is comfortable with the economics.
So I’m very excited to see what consumer adoption looks like. I expect consumers will love this model. It’s a great experience unlike anything we are used to.
These cashierless Whole Foods stores will likely become very popular, very quickly. I expect we’ll see Amazon roll out this technology to other locations across the country in the months to come.
My Near Future Report subscribers are already up about 55% on Amazon’s stock despite the latest market volatility… and I expect we’ll see greater gains to come when this model gains mainstream adoption.
To join us as we invest in more top companies pioneering this automation trend, go right here to learn more.
We talked just last month about GameStop’s partnership with blockchain pioneer Immutable X.
The plan is to launch a non-fungible token (NFT) marketplace. The companies plan to bring Web 2.0 games into the Web 3.0 world.
In other words, this is about modernizing GameStop’s business.
As I mentioned last month, there is more to this partnership than the mainstream media realizes.
That’s because Immutable X is building a layer-two blockchain to enable low-cost transactions. Layer-two is designed specifically to reduce the high transaction fees that have plagued the layer-one blockchain Ethereum recently.
The partnership is also allocating $100 million to incentivize developers to create NFTs for the marketplace. And to take this a step further, Immutable X is even allocating $150 million in milestone payments to GameStop.
This is unusual given that Immutable X is a small private company. Usually, it’s the legacy incumbents like GameStop that set aside funds for incentives.
Well, now it all makes sense.
Immutable X just raised $200 million in its Series C venture capital (VC) round. Clearly, this deal has been in the works for a while. That’s why the company was comfortable with the incentive structure outlined with GameStop.
And some big-name players are backing Immutable’s Series C round. This makes the partnership even more exciting.
Temasek – Singapore’s sovereign wealth fund – led the Series C round. And companies like Tencent, Liberty Global, and Animoca Brands also participated.
Tencent is one of the most successful tech companies in history. Liberty Global is one of the world’s largest media conglomerates. And as we discussed back in January, Animoca Brands is a major player in the NFT space.
These high-profile investors give Immutable X and the GameStop partnership major credibility. It initially looked like GameStop was reaching for straws with this idea, but that obviously is not the case…
There are very strong backers involved, and potentially one of them could be a future acquirer of GameStop itself.
Now the partnership has the cash it needs to get the NFT marketplace up and running. It’s full steam ahead.
And with these strategic players backing the project, I would not be surprised to see some interesting things happen in the coming months. Given GameStop’s positioning, this could very well become the go-to NFT marketplace for the gaming industry.
We’ll certainly be tracking this one closely going forward. And I’ll continue to show readers how to invest in the latest NFT opportunities like this… Simply go right here to learn more.
Regards,
Jeff Brown
Editor, The Bleeding Edge
P.S. Don’t forget about my big event next Wednesday, March 16. I’m finally ready to go live with my secret “Perceptron” project.
This is something I’ve spent five years and more than half a million dollars on. It’s all about using bleeding-edge technology to spot major 60-day “profit windows” in the cryptocurrency space. That’s regardless of what the overall market is doing.
And thanks to the Perceptron’s ability to crunch absolutely massive amounts of data, it can identify these profit windows over and over again. We’re talking about a turnkey trading system here.
This is technology that hedge funds would love to get their hands on… except it’s 100% proprietary. We developed the tech in-house with the help of a top-tier computer scientist. I have even filed a patent with the U.S. Patent and Trademark Office (USPTO) to protect the intellectual property (IP).
And after extensive testing, I’m finally ready to put the Perceptron to work for my subscribers. That’s what my event is about next week. And I’ll even be giving away a free trade to attendees…
It will go live next Wednesday, March 16, at 8 p.m. ET. And I promise this is like nothing the industry has seen before.
So I encourage all readers to set aside some time to join me next Wednesday. The event is free to join. We just ask that you reserve your spot in advance right here.
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
